by 3.5% decline in Q4 revenues attributed to strong year of shipments of 2022 backlog
BOSTON HEIGHTS, Ohio — Lifestyle retailer Arhaus reported decreases in net revenues and net income for the fourth quarter ended Dec. 31. For the full year, revenues were up nearly 5%, reaching a record $1.3 billion.
For the quarter, the company reported net revenues of $344 million, down 3.5% from $356 million in the fourth quarter of 2022. Net income was $31 million, down 33.6% compared to $47 million in the fourth quarter of 2022.
The company attributed the decline in revenues to a strong year of shipments in its backlog in 2022.
Its gross margin during the quarter totaled $141 million, down 10.6% from $158 million in the fourth quarter of 2022. It attributed this to decreases in net revenue and higher transportation and showroom expenses.
SG&A expenses for the quarter rose 7.1% to $100 million, compared to $94 million in the fourth quarter of 2022. It said this was driven by higher corporate expenses to support the growth of the business along with higher selling expenses related to new showrooms and higher demand. This, the company said, was partially offset by lower warehouse expenses.
Net income as a percentage of net revenue fell 410 basis points to 9.1% in the fourth quarter, compared to 13.2% in the fourth quarter of 2022.
For the full year, the company reported $1.3 billion in revenues, up 4.8% compared to $1.2 billion in 2022. This was driven by higher demand in its showroom and e-commerce segments along with delivery of orders in its backlog.
Net income for the year was $125 million, down 8.3% compared to $137 million in 2022, and SG&A expenses rose 10.5% to $376 million, compared to $340 million in 2022. The company said this was driven by investments to support the growth of the business, including higher corporate expenses, increased selling expenses related to new showrooms and stronger demand, a donation to the Nature Conservancy and higher stock-based compensation expenses. It was partially offset by lower warehouse expenses and the non-recurrence of costs related to the opening and setup of its Dallas distribution center.
Net income as a percent of net revenue fell 140 basis points to 9.7%, compared to 11.1% in 2022.
Gross margins for 2023 were $540 million, up 2.9% compared to $525 million in 2022, which the company said was driven by higher revenue, and partially offset by higher costs — including higher product, showroom and transportation costs — related to the increase in revenue. Another factor was higher credit card fees related to increased demand.
“Our vision as a premium home furnishing destination in the U.S. is to stand for impeccable design, incomparable craftsmanship, inspirational presentation and responsibly sourced home furnishings that are artisan-made to last for generations,” said John Reed, co-founder and chief executive officer. “ In our endeavor to provide high-quality, livable luxury home furnishings, we delivered another outstanding year in 2023, with record net revenue of approximately $1.3 billion, net income of $125 million, and adjusted EBITDA of $203 million.”
Other highlights of the report were as follows:
+ The company had 92 showrooms in 29 states by year end, compared with 81 total showrooms across 29 states at the end of 2022. Reed said the company also completed eight renovation, relocation and expansion projects during the year.
“Our showroom growth was tremendous in 2023,” he said. “We are excited to continue to expand our brand awareness as we introduce the Arhaus showroom experience to many more new clients across the U.S.”
He added that the company’s “growth momentum and strategic investments” will continue this year as it expects to add nine to 11 new showrooms, including four to six traditional showroom formats, two Design Studios and three outlets. It also plans several renovation, relocation and expansion projects.
+ The company reported adjusted EBITDA of $51 million, compared to $74 million in the fourth quarter of 2022, a 30.9% decrease. It decreased 590 basis points to 14.9% in the fourth quarter compared to 20.8% in the fourth quarter of 2022.
+ For the full year, adjusted EBITDA decreased 8.6% to $203 million, compared to $233 million in 2022. As a percentage of net revenues, it decreased 230 basis points to 15.8%, compared to 18.1% in 2022.
+ Cash and cash equivalents totaled $223 million as of Dec. 31, and the company reported no long-term debt.
+ Net merchandise inventory decreased to $254 million, compared to $286 million as of Dec. 31, 2022, an 11.2% decrease.
+ Client deposits decreased 14.2% to $174 million.
+ For the year ended Dec. 31, net cash provided by operating activities was $172 million, compared with $73 million for the full year ended Dec. 31, 2022.
“I want to thank the Arhaus team for their hard work and tremendous accomplishments in 2023 and for their unwavering dedication to our clients,” Reed said. “We are excited about our future and are committed to delivering value to all our stakeholders.”
